It’s that time of year when senior living organizations begin operations budget planning for the coming year. The following article highlights critical financial areas impacted by inflation for organizations to carefully review ahead of committing to a 2024 budget.
Revenue Opportunities
Occupancy Trends
Traditionally occupancy trends are revealed through net gains or losses month over month. A word of caution to not just rely on current patterns to project the next year but to do some homework and dive deeper into the reasons behind the occupancy trends.
Consider conducting a planned sales and marketing meeting that evaluates the current market conditions such as competitor occupancy rates, customer price tolerance, prospect inquiry trends and internal sales results. Search for opportunities to improve outcomes and where the investment of time and money will make the best impact and document a solid plan. This effort is often overlooked yet determines the most critical revenue impact to the budget and overall planned success of the organization.
Rental Rates
Considering inflation impacts on all business line items, how do rental rates compare with the added expenses the organization has taken on in 2023? Take the opportunity to review the current rental rates compared to the market rates and market rate tolerance. Does the organization have a process for rate changes such as on a rate increase based on anniversary date or annually?
Care and Services
- The cost of labor remains competitive in most major markets. Reviewing and evaluating the changes in labor expenses that provide care and services is crucial to ensuring the care and services rates cover the change in labor expenses.
- Carefully review current rent roll and charges for care and services to ensure charges line up with actual services delivered.
- Ancillary revenue – small charges add up. Does the budget and the operations process account for a la carte services such as additional transportation, shopping assistance, meal delivery services, etc.
Expense Management
Communities across the US have experienced a significant financial strain constricting planned net operating gains. The opportunity to adjust planned and controllable expenses is now. Operators are challenged with seeking out efficiencies in non traditional ways to help relieve the financial stresses. Below are areas, when explored deeper, may help present opportunities while also pointing out areas to anticipate continuing to squeeze out margins.
Labor
By far labor is the largest expense for senior living operators. Over the past few years, operators have adjusted rates and benefits to attract talent still left with challenges managing overtime, agency use and burnout. When reviewing labor expenses, consider the past years greatest successes along with the greatest challenges to create a strategic plan.
What recruitment efforts have been the most successful and is there an opportunity to leverage on your current staff to help drive efforts? For example, taking time to survey current staff about what attracted them initially and what motivates them to stay, may open a new insight into streamlining recruitment efforts into more productive outcomes while controlling costs.
On the same level of importance is evaluating retention efforts. The cost of turnover alone impacts the bottom line in many ways not always clearly visible on financials. The soft cost associated with added time from leaders filling in openings leading to burnout adds up quickly and the organizational feel and culture are affected. On the flip side, retaining staff can also support revenue growth supporting consistency in delivery of services and improved customer satisfaction. Consider taking time to strategically plan a retention strategy that includes budgeting dollars to invest in new and current employees.
Food & Beverage
Second to labor expenses comes raw food and beverage costs. As with most expenses, raw food and beverage costs have also seen a significant rise from the effects of inflation. Take the time to re-evaluate actual per-resident-day meal costs compared to what was previously budgeted. Meeting with the food supply vendor and the individual managing food orders and inventory in advance of budget planning will help identify expense trends while also exposing opportunities for inventory utilization with adjusted menu planning. The key is to carefully plan in advance without compromising customer satisfaction and expectations.
Supply Costs and Vendor Services
As with all things inflation related, so is the cost impact on supplies needed for routine operations. Dive into current supply rates and discuss with supply vendors where cost saving opportunities may live. An example may be ordering larger quantities less often to save on shipping costs plus gain discounts when orders exceed certain thresholds.
Watch out for vendor annual service rate increases. Just as an organization may increase rental rates annually so may a service provider. They too are impacted by rising fuel and labor costs. Take time to check in with supply vendors and service providers to anticipate any changes in rates.
Operating Systems
Since the pandemic, operators have seen an increase in use of technology systems. Budget season is an ideal time to evaluate those systems to ensure the organization is benefiting from productive outcomes as the costs of these systems add up quickly. Operators have discovered some systems adopted were never fully “adopted” in the field and therefore the organization is not gaining full benefits. Ask, which systems are “nice to have” vs. “must have” and is there an opportunity to consolidate systems not only for cost savings but also for the time savings from the user end?
Utilities, Insurance and Debt
The uncontrollable costs of utilities, liability insurance and debt services have caused a significant financial burden on owners and operators drawing what little margins may remain down to all time lows. Although this area is not typically an area the operator or community leadership can control, it is an area to account for on the budget and overall performance plan of the community.
Community leaders should pay careful attention to the impact of these expenses and how greatly the impact has on normal day to day operations. Leaders who place attention and focus on mitigating liability risk, evaluating opportunities for savings on utility expenses and generating adequate revenues have a positive impact on managing this growing expense line.
Discover Success
While budget planning can be stressful and time consuming, organizations can also gain critical insights revealing opportunities for improved efficiencies. Taking the time to dive deeper into the story behind the numbers may be the key to driving sustainable success.
RevealSol Operations Specialist